Commentary: Battle lines forming on carbon tax

For a political non-starter, a carbon tax is generating an awful lot of activity on Capitol Hill. On Wednesday, the conservative Republican Study Committee is holding a press conference to slam the idea, headlined by Texas Reps. Joe Barton and Jeb Hensarling and Louisiana chair Steve Scalise, with star billing to anti-tax activist Grover Norquist.

A bevy of fossil-fuel industry representatives and conservative activists such as Myron Ebell, who runs the climate skepticism activities of the Competitive Enterprise Institute “will discuss harmful impacts of a carbon tax on American families and small businesses” and “unveil a resolution opposing efforts to implement a national carbon tax.”

The National Association of Manufacturers weighed in with a study claiming that a carbon tax would devastate the economy. The study omits the rising cost of droughts, floods and hurricanes.

It’s all very peculiar given that White House spokesman Jay Carney dismissed the idea last November: “We would never propose a carbon tax, and have no intention of proposing one.”

What’s catching people’s attention is the “fee and dividend” carbon tax that is remitted back to consumers as a big check each year, based on Alaska’s Permanent Fund. Sen. Barbara Boxer (D-CA) is co-sponsoring a version with Sen. Bernie Sanders (I-VT); former Secretary of State and Treasury George Shultz, a Californian who served under Ronald Reagan, promoted the idea on Capitol Hill last week. NASA climate scientist James Hansen is also a huge backer, saying that putting a price on carbon may be the only way to prevent catastrophic climate change.

Economists favor a carbon tax over cap-and-trade as more efficient and transparent; it’s also a consumption tax that economists tend to prefer over income and investment taxes. Adele Morris at the Brookings Institution argues that a “modest” carbon tax could help reduce the deficit, and that Republicans ought to consider it as a market-based alternative to President Obama’s vow to regulate C02 emissions from existing power plants. The idea is gaining traction among conservative economists, who see it as a way to cut the corporate tax rate, including former Bush adviser Greg Mankiw.

On Tuesday, Rep. Henry Waxman, D-Los Angeles, the architect of the failed cap-and-trade legislation of Obama’s first term, issued with several other members a discussion draft of a carbon tax. Under their plan, “All revenue generated by the carbon pollution fee should be returned to the American people,” although the authors do not seem to be considering a straight transfer.

Even China is now proposing carbon taxes. Part of the problem with reducing U.S. C02 emissions is that it would impose high costs on U.S. industry, making U.S. companies uncompetitive globally and inducing a further shift of manufacturing to China. But most new versions of the tax, including Boxer/Sanders, would include a border tariff on the carbon content of imports that is equivalent to the tax. That would create a big incentive for exporting countries like China to impose their own carbon tax so as to keep the revenue.

Opponents clearly think the idea is gaining traction and want to stop it before it gets too far.